OPEC Surprises Markets With Last Minute Deal

In the last possible minute, OPEC+ managed to agree upon a massive cut of 1.2 million bpd, pushing oil prices up by over 3 percent.

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Friday, December 7th, 2018

OPEC+ succeeds, agrees to cut 1.2 mb/d. The obvious major news of the day comes from Vienna. OPEC+ agreed, despite a lot of jockeying, to cut 1.2 mb/d of supply beginning in January. OPEC will contribute 800,000 bpd and non-OPEC will cut by 400,000 bpd. The group met on Thursday but cancelled a press conference, raising doubts about the ability to reach an agreement. Iran held up the talks early Friday because it refused to accept limits on its production, although, to be sure, any limit would be symbolic anyway since its output is declining due to sanctions. Iran was exempted from the deal. Oil sank on Thursday and in early trading on Friday, but prices spiked by more than 4 percent when an agreement was announced.

Trump admin to roll back sage grouse protections. On Thursday, the Trump administration announced plans to roll back protections on the sage grouse, effectively opening up 9 million acres of federal lands to mining and drilling. The move would open up more land than any other policy change to date, according to the New York Times. The proposal is expected to be finalized next year.

U.S. considers sanctions on Venezuela. The U.S. has on multiple occasions considered slapping painful sanctions on Venezuela, and the downturn in oil prices has opened up another opportunity to do so. S&P Global Platts reports that “hawkish White House officials are urging” Trump to target Venezuela’s PDVSA over human rights violations. “If the White House were to pressure Caracas to block a new constitution, we would not expect [Trump] to pull many punches,” ClearView Energy Partners said in a recent note to clients. Related: Qatar’s OPEC Exit May Just Be The Beginning

U.S. detains top Chinese tech exec for sanctions busting. At the request of the U.S., Canadian authorities arrested Meng Wanzhou, a top executive at Huawei, a Chinese technology firm, for violating sanctions on Iran. The detention came while the Trump-Xi meeting was going on in Buenos Aires last weekend. Earlier this week, China said it was preparing to step up purchases of American soybeans, LNG and crude oil again in a show of good faith towards the recent trade ceasefire with Trump. However, the Huawei affair significantly complicates the trade negotiations between the U.S. and China.

Maersk to cut CO2 emissions to zero by 2050. A growing number of major corporations are announcing plans to curtail carbon emissions. Maersk, the world’s largest container shipping company, said that it would slash emissions to zero by 2050, which would require coming up with emissions-free engine technologies by 2030. “We will have to abandon fossil fuels. We will have to find a different type of fuel or a different way to power our assets. This is not just another cost-cutting exercise. It’s far from that. It’s an existential exercise, where we as a company need to set ourselves apart,” Soren Toft, Maersk’s chief operating officer, told the Financial Times. Meanwhile, Xcel Energy (NASDAQ: XEL), a large U.S. utility, also announced plans this week to transition to zero emissions by 2050.

Clean energy surpasses fossil fuels in emerging markets. In 2017, developing countries added more clean energy electricity than fossil fuel generation for the first time ever, according to Bloomberg New Energy Finance. Of the 186 gigawatts of new power capacity added in developing countries last year, clean energy accounted for more than half.

Global CO2 emissions rise in 2018. For the first time in five years, rich countries are on track to see their CO2 emissions rise this year, according to the IEA. Higher oil and gas consumption offset declining coal use. Rising emissions come even as scientists warn that the worst effects of climate change are coming faster than previously predicted.

Marathon could combine Permian pipeline with Exxon. Marathon Petroleum (NYSE: MPC) said that it is in “exploratory discussions” with ExxonMobil (NYSE: XOM) and Plains All American (NYSE: PAA) to “combine efforts” for a pipeline from the Permian to the Gulf Coast.

AMLO won’t cancel oil contracts but steps up pressure. Mexico’s new president Andres Manuel Lopez Obrador said that he would not cancel previously issued oil contracts but put pressure on the array of private companies awarded contracts to produce quickly. “We can’t keep on giving out territory for the extraction of hydrocarbons if there is no investment and there is no production,” he said. “We want them to demonstrate that they are going to invest and produce oil. We will make a decision based on results,” he said, before adding that there will be a three-year “truce.” He didn’t offer details on that, but it sounds like a hiatus on new oil auctions.

Texas earthquakes add new problems. An uptick in seismic activity in Texas could prompt new restrictions on how drillers dispose of wastewater. According to Bloomberg, the Texas Railroad Commission – the oil regulator in the state – could put limits on the pressure and volume of wastewater injected into disposal wells. The rules have not yet been finalized.

Permian reserves upgraded. The U.S. Geological Survey hiked its estimate for the Delaware basin in the Permian, a part of the Permian that is less developed than the Midland basin. USGS said the Wolfcamp and Bone Spring formations in the Delaware could hold as much as 46.3 billion barrels of oil and 281 trillion cubic feet of natural gas. “Christmas came a few weeks early this year,” said U.S. Secretary of the Interior Ryan Zinke. Taken together, the Midland and Delaware are the USGS’ “largest continuous oil and gas assessments ever released,” USGS director Dr. Jim Reilly said in a statement.

Low oil prices challenge U.S. shale. Drilling activity could fall 10 to 20 percent in the U.S. next year if oil prices stay low, Steven Pruett of Elevation Resources LLC told Reuters. Many analysts see $50 per barrel as a key threshold. “The reality is a lot of them get scared at $50, and their bankers get scared at $50,” Phil Flynn, an analyst at Price Futures Group, told Reuters.